Monday, October 25, 2021
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Investors in Bharti Airtel’s public sector deals are annoyed by the company’s private market deals.

MUMBAI: Bharti Airtel stock has dropped nearly 15% from its early February highs, trading at Rs521 per share. At the same time, the Nifty 100 index has improved significantly. While the delay in the much-anticipated tariff increases remains a concern, analysts claim institutional investors are also disappointed with some of the firm’s recent private capital market transactions.

In February, the company announced that it would purchase the remaining 20% of its direct-to-home (DTH) market from a private equity firm in a cash-and-stock transaction. Airtel had agreed to increase its interest in Indus Towers Ltd around two months ago. “Institutional investors are becoming more worried about the company’s capital allocation goals. They see telco operations as their core business, and recent investments as non-core distractions, especially in declining segments like DTH,” said an analyst at a domestic institutional brokerage who asked to remain anonymous.

Three years ago, Bharti Airtel sold shares in its DTH venture to Warburg Pincus to raise funds. It was also expected by investors to reduce exposure to the tower infrastructure market. As a result, the two transactions were unexpected.

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Airtel Africa’s latest stake sale offer in its mobile money operations brought back memories of previous transactions with private equity firms that cost the company dearly. The company announced in mid-March that it had raised $200 million by selling a stake in its money business to private equity firm TPG ahead of an IPO (IPO). If there is no IPO within four years of the purchase, or if the company’s control changes without TPG’s prior consent, TPG has the right to sell the stock back to Airtel Africa or its affiliates. Although no minimum return is guaranteed, TPG may receive as much as $400 million if and when the stake is sold back, based on an independent valuation.

Investors who purchased shares worth $1.45 billion in the Airtel Africa IPO in 2019 were granted such indemnities prior to the IPO. Following the company’s initial public offering, the company paid out nearly $580 million to these investors after the company’s stock price plummeted. The payouts on account of the indemnities were exceptionally high relative to the sums raised in the pre-IPO fundraising, which left a poor taste in the mouths of investors, according to the analyst listed above.

Despite continued improvements in its financials in recent years, Airtel Africa shares continue to trade at much lower levels than pre-IPO share placements. Of course, this does not rule out the possibility of a similar encounter with the mobile money stake sale, though ‘once bitten’ investors are understandably wary. The bigger issue, as previously mentioned, is the company’s sudden interest in investing in non-core areas. In the absence of tariff increases, buying interest in the stock is waning as well.

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